US President Trump weighed into the state of America’s semiconductor manufacturing when he declared, “They [Taiwan] stole it from us. They took it from us, and I don’t blame them. I give them credit.” At a prior White House event President Trump hosted TSMC chairman C.C. Wei (魏哲家), head of the world’s largest and most advanced chip manufacturer, to announce a commitment to invest US$100 billion in America. The president then shifted his previously critical rhetoric on Taiwan and put off tariffs on its chips. Now we learn that the Trump Administration is conducting a “trade investigation” on semiconductors which is likely to produce new tariffs within several months.
Trump has spoken consistently of the importance of the semiconductor industry to America’s future and the necessity to broaden and deepen the base of manufacturing to include high-end chips for cutting-edge applications in areas such as artificial intelligence and quantum computing. He has focused minds on his demand by threatening tariffs on chips ranging from 25 to 100 percent, a threat that looms over TSMC, indeed America’s entire semiconductor ecosystem.
TSMC operates a near monopoly on high-end chips, producing over 90 percent of global production, which are produced almost exclusively in Taiwan. The threat posed by China to Taiwan raises concerns about supply chain disruptions or even absorption of its semiconductor industry into China’s economy, should the communist country successfully invade.
US Vice President Vance noted in a February speech in Paris, “the Trump Administration will ensure that the most powerful AI systems are built in the US with American designed and manufactured chips.” To achieve this goal, the United States must partner with Taiwan, the indispensable AI hardware partner in the effort to stay in front of China. The concern is the US could conceivably go from a tight partnership with Taiwan, to seeing that ecosystem absorbed by Beijing. The stakes are that high.
The completion of TSMC’s Phoenix, Arizona campus, six fabs in total, will take well into the 2030s and over that time the US will remain deeply intertwined with Taiwan’s technology sector. Indeed, once the US campus is complete, the majority of high-end chips will continue to be manufactured by TSMC in Taiwan.
Now comes news that Nvidia, a global leader in hardware and software for next-generation applications, will partner with Foxconn to build factories in Houston, Texas and Wistron in Dallas, Texas to produce AI supercomputers. This huge commitment pairs well with its commitment to TSMC’s Phoenix, Arizona campus increasingly producing Nvidia’s latest chips.
This is about risk mitigation, not about moving TSMC’s entire ecosystem to the United States, and while some Trump Administration officials dismiss Taiwan as “not existential for America,” the complexity and interdependent nature of this industry near guarantees that to win Vance’s AI competition with China, a free and democratic Taiwan must remain allied with the US.
Taiwan’s government has agency in this process too. The government of Taiwan’s President William Lai (賴清德) has been clear that while the investment will “continue to create mutual benefits and a win-win situation with Taiwan’s allies,” the island nation will continue to keep the leading-edge technology in Taiwan, allowing only 1-2 generations behind the most advanced node production to head off-island. TSMC needs permission from the Taiwan government to undertake these investments and no government, if it wants to stay in power, can be seen to hand over the country’s crown jewels. So a delicate dance is underway in Taipei to address Trump’s concerns and thereby minimize broader damage to bilateral relations while ensuring that TSMC remains the most important semiconductor company in the world and headquartered in Taiwan.
This latter point has significant ramifications for the island as TSMC’s investments in the US are not seen as a clear-cut win by all Taiwan’s people. TSMC’s founding in 1987 heralded the creation of the fabless semiconductor industry and it holds preeminent national pride, a political issue, as well as practical importance given that the industry produces 15 percent of the country’s total GDP and is broadly viewed as a “Silicon Shield” against Chinese attack.
China understands the vulnerability and seeks to capitalize. It recently accused Taiwan of “giv[ing] them [TSMC] away as souvenirs”. China’s effort to stir up domestic dissent causes real problems exacerbating already fractious domestic tensions while the US and China are in the early stages of an economic struggle to dominate revolutionary technological change, and having Taiwan on your team is a must for the winning side.
Trump’s tariff threat to the semiconductor industry isn’t going away. Indeed, it may finally be imminent. Irrespective of the final number, he will leave the threat of more tariffs looming over the industry to keep companies and nations onside and to extract future concessions should his priorities evolve.
TSMC, Foxconn and Wistron are all expanding rapidly in the US in partnership with long-time partners and some of that urgency has been created by Trump’s demands that more be done in the US. The supply chain continues to evolve, and that is a familiar dynamic given that investment and production have been shifting out of China since Trump was elected in 2017 and sent shockwaves through the global economy when he redirected America’s China policy from accommodationist to realist.
Trump could take TSMC’s yes for an answer, shelve his chip tariffs and let the US semiconductor industry, in partnership with Taiwan, continue to create trillions of dollars of partnered Taiwan and American wealth. However, what’s more likely is a period of higher costs in the supply chain, but that does not directly equate to a severing of supply chain partnerships and trust built up over decades. Those partnerships will continue as companies like TSMC, Nvidia, Foxconn, Apple, Wistron and others continue to partner together in Taiwan and America.
Rupert Hammond-Chambers is the president of the US-Taiwan Business Council (USTBC), a senior advisor at Bower Group Asia and sits on the board of The Project 2049 Institute.
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